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What is salary packaging?

Salary Packaging, sometimes referred to as salary sacrificing, is an Australian Taxation Office (ATO) approved way of receiving benefits such as motor vehicles, extra superannuation and other items by way of a pre-tax salary payment.   By paying for these items before tax means that you will be taxed on your remaining income.  This in turn lowers your taxable income, meaning you pay less tax! 

How salary packaging works

Salary packaging with SPA allows you to spend some of your hard earned income before you get taxed.  This is an ATO (Australian Tax Office) approved way of potentially saving on how much income tax you pay and therefore you will have more disposable income. 

SPA is an outsourced salary packaging provider for your employer and we specialise in the administration and management of the salary packaging function for both the employer and employees of a number of organisations.

The process involves your payroll deducting an agreed nominated amount of funds from your pay before tax every pay cycle.  These funds are then transferred to SPA for disbursement upon the employees’ instructions.    The flow chart below will give you an indication of how SPA fits in the salary packaging process.

This flow chart illustrates the role that SPA plays in your salary packaging set up.  Instead of your payroll making payments on your behalf or managing the salary packaging function internally, they have outsourced this function to SPA.

What are the benefits?

Under Australian Tax Office guidelines, the items you can Salary Package depend on the type of organisation you work for. Depending on your employer's tax status; you may be able to salary package a number of different benefit items.  Generally speaking, most employers fall under the GENERAL or Full FBT category.  For most employers in the GENERAL or FULL FBT Category, the main attraction when it comes to Salary Packaging will be packaging towards a Novated Lease and extra contributions towards Superannuation.

When an employee Salary Packages towards a Novated Lease, the employee pays for some of the running costs and lease repayments before tax.

The example below shows how Salary Packaging towards a Novated lease can potentially save you tax.

The following calculation is based on a $30,000 car on a 4yr lease with an employee driving 20,000Klms per year, earning $55,000 per year              

 

Without Salary Packaging

 

With SPA Salary Packaging

Gross Salary

$55,000

Gross Salary

$55,000

Car Packaging

 

Car Packaging

$8,834.34

Taxable Income

$55,000

Taxable Income

$46,165.66

Income Tax

$10,874.70

Income Tax

$8,091.88

Employee Contribution

 

Employee Contribution

$6,000.00

Take Home

$44,125.30

Take Home

$32,073.78

Vehicle Expenses

$15,717.78

Vehicle expenses

Nil

Take home pay

$28,407.52

Take home pay

$32,073.78

Your savings per year

 

Your Savings per year

$3,666.25

Please note: that the above calculation is intended as a guide only and should not be relied on as a complete and accurate statement of the actual tax savings applicable to your personal financial position.  Please also note the savings amount shown above does not take into account other income based payment obligations and benefit entitlements that may or may not apply to you.  SPA recommends that you seek independent financial advice to confirm the impact of salary packaging on your personal financial position.

SPA Salary Packaging
47 Prospect Street, Fortitude Valley, QLD, 4006
* How much can I save?: The savings calculator is intended as a guide only and should not be relied on as a complete and accurate statement of the actual tax savings applicable to your personal financial position. For a more accurate calculation based on your circumstances please contact SPA for an obligation free assessment.